LONDON ¿ CeNeS Pharmaceuticals plc has parted company with its CEO and several other directors as it embarks on a restructuring that likely will lead to the disposal of the drug delivery division around which the company was founded, and the mothballing of most of its R&D programs to preserve cash.
Chairman and co-founder Alan Goodman said the moves are intended to ¿preserve shareholder value¿ at a time when difficult market conditions put in doubt CeNeS¿ ability to raise money in the next 12 months.
His fellow co-founder, CEO Dan Roach, is leaving along with commercial director Martyn Collett and five nonexecutive directors.
And the CeNeS restructuring has ¿portents for the sector,¿ said Emma Palmer, an analyst at WestLB Panmure. ¿The difficulty in raising money via the markets may force companies into unfavorable and unusual funding structures, accompanied by restructuring, and the market downturn may throw up M&A opportunities for mid/large pharma.¿
CeNeS, a specialist in central nervous system disorders and pain, also announced a US$2.2 million investment from its joint venture partner, Elan Corp. plc, of Dublin, Ireland. This, along with the cutbacks, will give CeNeS, based in Cambridge, sufficient funding until the end of 2003.
Neil Clark, finance director and as of Monday acting chief operating officer, said problems have arisen because it is currently very difficult to raise money on the open market. ¿Our advisers are closely involved,¿ he said. ¿We had a restructuring plan of sorts in place most of the year. Now we are acting on it.¿ It is not clear yet how many of the 130 staff will be cut.
Although the company has been approached with various offers of finance, Clark said they were discounted because they were not fair to existing shareholders. ¿Rather than shackle the company with an unattractive financing option it was thought better to restructure and mothball projects,¿ he said.
Clark refused to specify why the difficulty of raising money, a problem shared by many quoted biotechnology companies, should prompt the departure of the CEO and commercial director. ¿It is not a case of blaming someone. The board has unanimously agreed that this is what the board needs to look like going forward, and Dan and Martyn were members of that board.¿
CeNeS is betting its future on lead product M6G, a painkiller, which is a metabolite of morphine. It announced further positive Phase II results and said the compound will enter Phase III in 2002. It is also assigned additional rights to M6G to the joint venture with Elan. The joint venture was set up in June solely to deliver M6G with MediPad, Elan¿s slow-release subcutaneous injection system, but CeNeS now has passed all the rights to M6G to the venture.
The partners agreed to increase the funds available for the clinical development program from US$2 million to US$10 million. Elan subscribed for a total of 9.1 million CeNeS shares at 16.5 pence, raising US$2.2 million for general expenditure by CeNeS. The move brings Elan¿s holding to 9.9 percent, and it also will receive warrants covering 915,000 CeNeS shares at an exercise price of 31.6 pence each. CeNeS shares fell by 1.25 pence to close at 14.5 pence on Monday when the restructuring was announced. At the start of 2001 when the share price was 59 pence, the market capitalization was over #63 million; it is now below #25 million.
CeNeS has put its drug discovery division, based in Irvine, Scotland, up for sale, and Clark said all other projects are under review. He expects some to be mothballed and some to be partnered. ¿It is not clear as yet [what will happen to particular projects]. But the company will be led by its pharmaceutical sales division and M6G.¿
CeNeS launched its first hospital pain product, Xevo, a month ago, and Clark said it was too early to say how sales are going.
Projects under review include CEE 03-310, a dopamine D1 receptor for the treatment of sleep disorders, which has completed Phase I. The compound also has an IND for a Phase II study in substance abuse. CNS 5161 for the treatment of neuropathic pain is in Phase II and CeNeS is looking for a partner. Clark said the company will talk to Bioglan Pharma plc (with which it is developing an opioid spray and a slow-release formulation of morphine), and GlaxoSmithKline plc, its partner for sipatrigine (currently in Phase II for the treatment of stroke), about the implications for these projects.